Investors have given the tick of approval to Qantas Airways’ plans to reduce costs through staff cuts and deferring aircraft orders, sending the stock up to a near three-month high.
While unions and governments around the country expressed concern and outrage at news the airline was shedding 500 jobs – amid fears of more to come – the market reaction was unequivocally positive.
Qantas rose 9.5 cents, or 6.1 per cent, to $1.655, its highest close since November 18, 2011.
Net profit for the six months to December 31, 2011, plunged 83 per cent to $42 million as higher fuel prices, widening losses on its struggling international operations and November’s shutdown hit hard.
Qantas said grounding of the fleet as part of an industrial dispute with unions late in 2011 cost $194 million. Meanwhile, fuel costs rose 26 per cent to $2.2 million in the half.
The 500 positions to go would come from catering, cabin crew, pilots, engineering and ground operations, Qantas said.
These cuts were on top of the 1,000 the airline said would go in August 2011.
There was also the prospect of further redundancies as part of Qantas’s two-month review into its heavy maintenance and catering facilities.
Qantas chief executive Alan Joyce said the airline was committed to maintaining its engineering capability in Australia.
However, Mr Joyce said keeping three sites – Melbourne, Avalon and Brisbane – was not viable as newer aircraft coming into the fleet required less heavy maintenance.
“We are recognised as one of the most successful airlines in the world in an industry that is going to lose a significant amount of money this year,” Mr Joyce told reporters.
“We have to change to ensure we maintain that amazing standard.”
Underlying profit before tax – the airline’s preferred measure of financial performance – came in above market forecast and company guidance at $202 million, down 52 per cent from the prior corresponding period.
Tyndall Investment Management senior research analyst Michael Maughan said the decision to defer aircraft orders and pull back on capacity growth showed the airline was reacting to weaker market conditions.
Mr Maughan said the heavy maintenance review also indicated Qantas was turning its attention to its higher cost base relative to its international competitors.
“It is a positive start,” Mr Maughan said on Thursday.
“You are starting to see reasonably substantial cost reduction initiatives coming through.”
Qantas said first delivery of the 50 Boeing 787 Dreamliners the airline has on order would be deferred six months to mid-2013 as part of a $700 million capital expenditure reduction between now and the end of 2012/13.
Six older Boeing 747-400 were due to exit the fleet by May.
In terms of the outlook, Qantas said forward bookings indicated yields – or average fares per passenger – would be higher in the second half of 2011/12 compared with the prior corresponding period.
Capacity across the airline group – both Qantas and Jetstar – was forecast to rise about seven per cent in the second half, compared to the same time a year ago.
However, Qantas said it was unable to offer profit guidance for the full 2011/12 year due to the high degree of volatility and uncertainty in global economic conditions, fuel prices, exchange rates and the “major transformational change underway”.
The airline was dropping its Singapore-Mumbai and Auckland-Los Angeles services from May.
Mr Joyce said Qantas was still in discussions with existing and potential partners about setting up a new premium carrier based in Asia.
